Financial Markets
The
first full trading week of the new year was clearly on correction mode on the equity markets. The main stock
market
indices were down, with the S&P500 and
the NASDAQ
100 losing 1.9% and 2.2%, respectively. If the correction continues, the next likely supports on the SPX are around 5780$ and 5650$. The small cap
index (Russel 2000) showed even more weakness and a flight to safety mentality, falling 4.2% for the week. Trading volumes were back to normal values, indicating a solid correction which can continue over the next couple of weeks.
The
metals were up – gold
and silver gained 1.9% and 2.8%, respectively. For the moment being, gold is defending the lower edge
of the current trading channel. Silver retraced close to 31$/oz during the week, but is looking weaker and
might fall to 28$/oz in the next weeks.
WTI rised 3.4% and is now above the 75$ level. If the moment continues in WTI, it can go up to 82$ over the next weeks before finding significant resistance.
Bitcoin topped out, as predicted, and fell to 95k$. We continue favoring the
downside at this point, with the next support at 92k$.
The
relative
strength of the US dollar (DXY) increased again this week (~110). The
EUR/USD is around 1.02$, the GBP/USD is at 1.22$, and the USD/JPY is at
157.7 JPY.
US M2 money supply at the date of 25th November 2024 was up by 0.64%.
The
national financial
conditions index (NFCI) for the week of 30th December 2024 loosened by 1.4%, which shows a slow but continuous loosening of financial
conditions. Note that this indicator is
delayed by a week.
US
bond yields were up this week, and now sit at 4.383% for the
2-year
and 4.763% for the 10-year. The 10-year yield may go up to 4.9-5.0% before stabilizing or falling back down. Such yield increases translate the market expectation that interest rates will not fall as quickly as initially predicted during 2025. We now need to wait for the next FED decision and economic developments.
The
VIX spiked up to 20 and ended the week around 19, indicating more fear in the markets and increasing search for put
options from the part of investors/speculators. It is becoming a better time to sell option premium.
Comment Section
As expected, equity markets started the trading year with a small correction, accompanied by bond yield increases during the week. The recent US jobs data indicated more job creation in December 2024 than anticipated, which is good for the economy, but may lead the FED to stop cutting rates, which is bad for equities. This is just a data point, thus we will not try to guess what will happen in the economy and interest rates in 2025.
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